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Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil’s Gains

By , Currency Analyst
31 March 2014 05:09 GMT

Talking Points

  • WTI may continue its run on better-than-anticipated US economic data
  • Gold vulnerable to further declines on stronger greenback
  • Short squeeze may help fuel copper’s climb back above the $3.00 handle

A raft of top-tier US economic data due this week may fuel further volatility for crude oil and gold. Meanwhile, copper could continue its upward trajectory following a break above the critical $3.00 handle as traders seemingly discount negative news-flow out of China.

US Data To Offer Guidance For Commodities

Crude oil may continue its march higher in the week ahead if upcoming US Manufacturing and Non-Farm Payrolls figures surprise to the upside. A better-than-anticipated US Durable Goods Order reading last week helped WTI crack the critical $100 a barrel mark, which suggests that continued improvements to US economic data may bolster demand for the growth-sensitive commodity.

Additionally, indications of a sustained economic recovery in the US may weigh on gold prices via implications for Fed Policy and the US Dollar. Positive developments in the labour market in particular would likely furnish expectations for eventual rate hikes from the Federal Reserve, which in turn is USD-positive.

Copper Bulls Pause Ahead of China PMI

While Copper is treading water in Asian trading today the base metal may be in store for another heated week in light of the China manufacturing data set to cross the wires tomorrow. The absence of negative economic news-flow out of the region towards the end of last week likely helped the commodity crack the critical $3.00 handle in trading on Friday.

Interestingly, the disappointing China Flash PMI reading last Monday failed to leave a lasting dent on prices. This may be attributable to increased speculation of new stimulus measures by Chinese policy officials. Thus even another weaker-than-anticipated printtomorrow may elicit only a short-lived dip for copper as speculative traders look to lighten up on near-record levels of short positions (see below).

Copper-Breaks-Above-300-Handle-Strong-US-Data-To-Extend-Oils-Gains_body_Chart_5.png, Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil's Gains

CRUDE OIL TECHNICAL ANALYSIS Several bullish technical signals have emerged for crude oil on the daily chart including a break of the psychologically-significant $100 handle. Additionally, the shift in prices above the 20 SMA and turn into positive territory from the rate of change indicator both suggest a short-term uptrend has emerged for the commodity. A break above the 61.8% Fib Retracement level at 102.19 would be needed before suggesting a possible advance towards the 2014 highs at $105.00.

Copper-Breaks-Above-300-Handle-Strong-US-Data-To-Extend-Oils-Gains_body_Picture_4.png, Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil's Gains

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS A bearish technical bias for gold is retained given the short-term downtrend remains intact alongside the break below several important support levels. While buyers have emerged near the 50% Fib Retracement level ($1,285), gains for the yellow metal may be limited by strong resistance at the psychologically-significant $1,300 handle.

Copper-Breaks-Above-300-Handle-Strong-US-Data-To-Extend-Oils-Gains_body_Picture_3.png, Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil's Gains

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS Silver remains in a short-term downtrend as signaled by prices holding below their 20 SMA. However, the rate of change indicator is beginning to reflect waning downside momentum, which may signal the potential for a short-term bounce. A retracement back towards resistance at $20.50 would be seen as a new opportunity to enter short positions with a target offered by support at $19.00.

Copper-Breaks-Above-300-Handle-Strong-US-Data-To-Extend-Oils-Gains_body_Picture_2.png, Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil's Gains

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS The short-term trend for copper has shifted to the upside as indicated by the 20 SMA and rate of change indicator. Alongside the break above the critical $3.00 handle a bullish technical bias is offered.

Copper-Breaks-Above-300-Handle-Strong-US-Data-To-Extend-Oils-Gains_body_Picture_1.png, Copper Breaks Above $3.00 Handle, Strong US Data To Extend Oil's Gains

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Market Analyst, FXCM Australia

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31 March 2014 05:09 GMT